Ask the Financial Experts: Investors see a much-more volatile market in 2018

Stock investors have seen more volatility so far in 2018 than they have seen over the past two years but if you’re a long-term investor, it’s nothing to be afraid of. Actually, we use volatility to our advantage to make investment decisions that we feel are prudent.

It started soon after the markets rose 8 percent in the first three weeks of January and it looked like the good times were going to keep on rolling. Stocks finished January on a high note until the January Jobs report was released and it showed more people going back to work and getting a bump in pay, this is what spooked the markets. When workers have more money in their pocket, they will spend it causing the price of goods and services to rise, which is better known as inflation. Because of the threat of inflation, the Fed might be expected to increase interest rates more than planned and therefore the stock market corrected 10 percent from the high on Jan. 26 to Feb. 8.

In addition to the Jobs Report, there were other risks to worry about; tariffs, trade wars, regulation on tech companies, inflation, higher interest rates, cybersecurity and the list goes on. But we don’t see a U.S. recession on the horizon. This volatility that we haven’t seen in a long time was unnerving to some investors, but its normal and shouldn’t deter your long-term goals and objectives. Over the last 37 years, the average swing in the stock market from peak to trough is almost 14 percent, so a 10 percent-12 percent dip is normal.

Let’s fast forward to now. The headlines we were worried about have diminished, corporate earnings are healthy and the economy is growing, slowly but still growing. This week retail sales rose at a healthy rate but consumer spending was sluggish. The unemployment rate is at 3.9 percent, the lowest level since 2000 and our workers are getting paid more especially those earning minimum wage. Tax cuts are putting more money in people’s pockets and consumer sentiment shows that people feel good about their future. This past week the 10 Year Treasury Note yielded over 3 percent, the first time in years which means that savers looking for interest are finally getting more than they have in quite a while.

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There’s a myth in the investment world that says, “Sell in May and Go Away” because over the last 90 years, two of the three worst months for stocks are May and September while three of the best four months in the market is December, January and April. Let me cut to the chase, we do not follow this belief and over the last five years, 2015 was the only year where stocks were down during the summer with a decline of 1 percent. As I pen this, stocks are up over 4 percent so far in May.

We take pride in educating our clients about investing and how they should look at risk. Occasionally we have a client who gets nervous and when they do, we send our IT folks to their home to put parental controls on those shows that are constantly showing negative breaking headline news that do nothing other than instill fear in investors.

Always remember, over the past 100+ years, stocks have recovered from anything and everything that has caused the markets to go down. I can’t think of anything that will change this over the next 100+ years. The only investors who lose money are those that actually sell and turn paper losses into realized losses because they are scared. Long-term investors should not try and time the markets, it’s a losing proposition.

Steven Bouchey CFP is president of Bouchey Financial Group, Ltd. with offices in Saratoga Springs and Historic Downtown Troy. E-mail investment and financial planning questions to planningpaysoff@bouchey.com. Information contained in this column should not be considered as the receipt of personalized financial advice and please consult with your financial advisor.